From the Sardinian Region the Seed Fund and Venture Capital

The premises

• Young enterprises play an important role in  guiding innovation and economic growth in general  
• But they require a large amount of outside capital to cope with losses in their first years of operation
• These companies are typically characterized by immaterial immobilizations, high risk levels and information gaps
• These conditions make recourse to financial debt rare, while the main source of financing is represented by  recourse to risk capital

A new perspective

• With the  conclusion of the previous Community programme (2007-2013) the present Ingenium Fund has completed its period of investments.
• The experience just completed has emphasized the  need for a new generation of funds capable of better satisfying the financial exigencies of our start-ups.

Overall objectives

• Augment the availability of risk capital for start-ups to support economic growth through ongoing development of a system of seed and venture capital in Sardinia;
• Encourage investments and appeal to private investors in sectors that have difficulties in finding suitable financing;
• Attract capital from  private and public subjects on the local, national and international levels for investments in Sardinia
• Sustain growth strategies in the innovative sectors selected by the Sardinian regional administration with additional capital and specific skills
• Maximize the additionality deriving from public support in terms of additional capital and skills in enterprise development
• Search for innovative financialsolutions that reflect today's best practices at the international level

Specific objectives:

• Set up a fund that co-invests on a wider basis in start-up enterprises located in Sardinia in the start-up and marketing development phases
• Complementariness with respect to other instruments sustaining Start-Up, with special reference to:
  • A. “Voucher Sardegna Ricerche”
  • B. National actions such as Smart & Start of the Italian Ministry for Economic Development and Invitalia

Investment strategy

• The fund intervenes by co-investing in equity operations by private operators, that is, direct acquisition, capital increase, temporary and minority financial participation
• Direct participation by the private investor and the regional Fund jointly cannot exceed 49% of the company’s capital of the beneficiary enterprise
• Division of public/private participation: 50% / 50% (pari passu)
• Private+public investment range: € 150,000 - € 1,000,000
• Maximum term of disinvestment: 5 years

Beneficiary enterprises

• Small and medium enterprises, as defined in Attachment I of EU Directive no. 651/2014, that operate in any sector of activity with operating office in Sardinia at the time of the paying up of resources for the purchase of shares. Therefore, the financed activity must take place in Sardinia
• Enterprises shall:
  • A) correspond to the definition of innovative pursuant to Article 25 of Decree Law no.179 of 18 October 2012 and subsequent amendments
  • B) satisfy at least one of the following conditions:
    • 1) not having operated on any market;
    • 2) require an initial investment for risk financing which, on the basis of a business plan drawn up for the launching of a new product or entering a new geographic market, above 50 % of their average annual turnover starting from the year of establishment

How the fund works

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Payback trend on the basis of disinvestment value

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Risk mitigation

Preferential payback to private investors of 25% of the sum they invested (using the sums resulting from disinvestment)

Preferential return

Once the capital invested has been divided between the fund and private investors on the basis of the percentages of participation in the capital, on the surplus amount (profit), the private investor will receive 56.25 % (preferential return) while the Fund wil receive 43.75 %

Risk premium

In the case of a disinvestment of more than five times the public-private investment, the exceeding amounts are assigned totally to the private investor, but after a public remuneration of 20%

Endowment of the Fund

Initial endowment: € 10 million from the 2014 - 2020 PO FESR Sardinia funds

The Fund is an integral part of the 2014-2019 Regional Development Programme which specifies the need to provide support in financing risk and access to credit.

"Three are the fundamental elements in creating Silicon Valley-type conditions: the beauty of the site, many young people fascinated by new technologies and with proper training, and the venture capital that enables the creation and development of innovative enterprises", in the words of Francesco Pigliaru, the president of the Region.

StartUp is good, but it is not enough. To grow and develop, small and medium enterprises need financial support. Even with brilliant ideas, setting up a company is always risky and does not always attract the necessary capital. There is a solution: its name is Venture Capital and a fund of ten million euros that the regional administration has decided to allocate for the purchase of direct participation in innovative enterprises. This is contained in a resolution of the Regional Council for Industry, together with that of Ways and Means. 

The Fund is an integral part of the 2014-2019 Regional Development Programme which specifies the need to provide support in financing risk and access to credit. "Three are the fundamental elements in creating Silicon Valley-type conditions: the beauty of the site, many young people fascinated by new technologies and with proper training and the venture capital that enables the creation and development of innovative enterprises" in the words of Francesco Pigliaru, the president of the Region

"Sardinia possesses the first two of these elements, but not the third, as is the case in all of Italy. The reasons for this are the bankruptcy laws at the national level that discourage investors. Unable to avoid this legal disadvantage, we intervene by means of this instrument, which increases our attraction potential by halving the risk for those who wish to invest. We have also found the physical place in Cagliari for our StartUps", the president concluded.

"The Manifattura Tabacchi (the former state tobacco factory) is the ideal place: it is ready and we are working to make it operative."

"The fund", - said the regional councillor for industry Maria Grazia Piras - "will give impulse to the startup and growth of new innovative enterprises. The StartUps will thus be able to increase their investments in research and development and consequently favour the creation of new jobs." 

These are the basic requisites of the Venture Capital fund: parity of conditions for subscription between public and private investors; partial assumption of the cost of losses by the public subject, should the investment not produce positive results; preferential attribution to the intermediate private subject of profits from investments in capital account which would not be distributed proportionally to the shares subscribed to.

"The objectives are many," said Councillor Piras: "while we want to favour private subjects interested in investing, at the same time we are trying to attract to Sardinia initiatives with strong growth potential, especially innovative enterprises and manufacturers operating in strategic sectors and the new technologies. Today there are many who could begin to think bigger. Our hope is that Venture Capital will help them grow and strengthen their presence on the marketplace."